Best practices, updated every Wednesday

October 30, 2013

Two new surveys reveal what legal clients want

Every
year around this time, I look forward to reading Altman Weil’s annual
survey of in-house law departments to get insights into the needs of legal
clients. When the results of the 2013
Chief Legal Officers survey came out last week, the first thing I noticed was that “78.5%
of CLOs negotiate price reductions from outside counsel to control costs.” I’d love to see a list of the 21.5%
of companies that don’t negotiate.

Then I turned
to this key question about what CLOs want law firms to do differently: “Of the following service improvements and
innovations, please select the three you would most like to see from your
outside counsel.” This year’s top three
were improved budget forecasting (57%), greater cost reduction (52%) and more
efficient project management (52%).

Since
better legal project management (LPM) leads to improved budget forecasting and
to cost reductions, you could say that the top three client requests were LPM,
LPM, and more LPM.

The
survey was based on questionnaires filled out by 207 law departments and is largely
focused on their internal operations. It
also included a very interesting discussion of CLOs’ preferences for four types
of pricing: transparent, guaranteed,
value-based and lowest price. However,
my interpretation of those results will be based on what I am hearing in my
AmLaw 200 interviews on Client Value
and Law Firm Profitabilitywhich are still
underway, so that discussion will have to wait for another day.

The
survey also found that 29% of law departments plan to cut spending on outside
counsel this year, while only 15% plan to increase it. (For the remainder, 49% said that spending
would stay the same, and 7% were not sure.)

Spending
cuts like this have been going on for years.
In a different survey of 968 senior legal decision makers entitled Winning and Losing Business, Acritas
recently reported that in the last year, one out of three of the world’s
largest companies have fired at least one law firm. The most common reason for “firing” is an
inevitable fact of life that law firms cannot avoid: the case or matter ended
(20%). The next two reasons for being
fired, however, are very much under law firms’ control: the firm was too expensive (19%) or its
lawyers were slow or provided poor service (17%). Both can be addressed by LPM.

In our
experience, prestigious firms often think they are above this trend, but
according to the Acritas survey (p. 4): “Prestige certainly does not provide
immunity from dismissal. Three of the top four most fired firms are
market-leading premium global practices. This significant shift away from premium-priced
firms as primary providers is a trend we have seen developing since 2010. Under
pressure to control external spending, clients are becoming more selective in
their use of ‘elite’ firms, reserving them more for bet-the-company work or
highly specialized matters alone.”

There
is every sign that price pressures for every type of firm will continue. Reverse auctions in which the low bidder
wins, the race to the bottom, and what Bruce MacEwen has called “suicide
pricing” are all part of the new
normal.

What
should you do if your firm is too expensive?
You could cut expenses to the bone and fire “non-essential” staff and
associates. Oh wait, you probably
already did that. You could slash your
own compensation, but I don’t see too many lawyers lining up to volunteer for
that option. Or you could learn to
become more efficient, by applying legal project management.